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Why can student loans not be discharged in bankruptcy?

On behalf of of Goldman & Beslow LLC posted in asset forfeiture on Tuesday, June 26, 2018.

When filing bankruptcy in New Jersey, you may be dismayed to learn that your student loan debt cannot be discharged as part of your case. There are only a very few, rare situations where you can get rid of your student loan debt by filing bankruptcy. In most cases, they will stick around even after you file and your case is closed.

According to Forbes, this is because Congress decided that they should not be subjected to the normal rules of discharging debt in a bankruptcy. The reason is that investments are needed into the area of student loans for lenders to continue to be able to provide these loans. If they are able to be discharged in a bankruptcy, investors may no longer wish to invest in them, which would in turn reduce the amount of money for such loans, making it harder to get them. This could have a negative effect on the ability of students to get the funding needed for education.

Since that initial ruling, student loan funding now comes largely from the government, but there are still some privately backed loans. Even if a student has government backed loans, after graduation, they often refinance through private lenders, which means those private investors are still needed.

The only chance you have of being able to say goodbye to student loan debt through a bankruptcy is proving undue hardship. This is not clearly defined and usually left up to the individual court to decide, making it even more difficult for you to prove it and get the court to allow your discharge. This information is for education and is not legal advice.

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